Watch: Tariff Recovery and Finding Cash Now SeriesMay 23, 2020
Who Should Participate?
Anyone concerned with the potential impact of trade and tariffs on their customers and supply chains, their stakeholders or their bottom line, including CEOs, CFOs, controllers, group presidents, and trade, tax, and legal executives.
This is the first of a three-part series focused on providing companies practical guidance and insights into recovering cash from previously paid tariffs and driving down costs.
This initial session explores how automotive companies are turning previously paid tariffs into an asset to be mined. Starting with a summary and outlook on the array of U.S. tariffs in-place that impact the North American automotive industry, the session provides practical guidance on how to source the data necessary to first develop a detailed understanding of your company’s tariff exposure and second serve as the foundation for finding cash in tariffs.
KPMG experts discuss why tariffs and trade tensions are the new normal, and the opportunities to obtain refunds of paid tariffs that are facts specific. You can understand tariff payments through ACE. The web-based access point allows companies to see trade reports on their import and export data to further analyze.
Because of the recent COVID-19 crisis, reclaiming tariffs could help companies offset cash impacts of the pandemic. Companies should assess their specific facts and file with the correct mechanisms to receive fast-track refunds.
Douglas Zuvich, Partner and Global Practice Leader, Trade and Customs Services, KPMG
Alex Kazan, Managing Director, Global Strategy, Eurasia Consulting Group, KPMG
U.S. importers paid 78% more in duties in 2019 than the previous year, yet a vast amount of duty payments are recoverable but not pursued. Accelerating recovery of customs duty and implementing savings strategies is a top priority for C-level executives during this economic downturn.
During this webcast, leaders from KPMG LLP’s Trade & Customs practice discussed optimizing the use of numerous tariff recovery and planning strategies for maximum savings and fund recovery.
Tariff Elimination and Recovery
There are three ways to request product exclusions for 232 and 301 tariffs:
- Submit your product exclusion request
- Leverage an exclusion granted to a third party
- File for a post-summary correction or protest
Businesses can also boost savings by coordinating efforts with their suppliers who may be rolling over higher tariffs or need assistance recovering tariffs and submitting an exclusion.
Granted exclusions are applied one-year from issuing and are retroactive to the date they applied. Businesses should frequently monitor the list of granted or pending exclusion requests to verify they’re maximizing the exclusion process for optimal tariff elimination.
Drawback is a retroactive recovery program that recuperates import duties, taxes, or fees paid on merchandise imported and exported from the U.S. If a business has exported or imported goods for more than five years but they have not claimed drawback, they are losing money daily and should move forward with a drawback program as soon as possible. Its recommended to leverage both tariff elimination and drawback in parallel leads to gain optimal savings.
If exclusions have been exhausted or a business does not export at a high enough volume for a drawback, they have various mitigation options to save on duties. Renegotiating prices with suppliers is a good first step. Businesses should also consider:
- A transfer pricing adjustment that helps recover past duties when a business paid too much in goods but did not make a profit
- Cost unbundling which allows a business to strip costs such as port charges and overseas security fees from the overall price to help lower prices and their dutiable value
- A first sale for export to help mitigate tax by being granted use of the factory price, a lower price, when they meet specific requirements
- Defective value allowance, a prevalent option in the automotive space, which allows businesses with warranty costs from imports with latent defects to go back and recover the duty on the costs spent on repairs
Duty deferral options can take time, so now is the time to explore them. It’s important for businesses to monitor duties and leverage multiple deferral options to optimize savings. The following deferral options are listed in order from longest to shortest deferral time:
- Foreign Trade Zones (FTZs) allow duty, fee, and excise taxes to be deferred indefinitely. This can take up to four months
- Bonded Warehouses are rigid and harder to maintain but offer duty deferment for up to five years
- Temporary Importation (TIB) allows a temporary deferment with intent to export or destroy goods within three years from the date of importation
- Bonded Movements allow flexibility for in-bound shipment timing upon request, and duties are deferred indefinitely
- Periodic Monthly Statements defer duties until the 15th business day after the month of entry and defers taxes and fees. This is the quickest and easiest deferral option
When businesses review and implement a combination of the elimination, recovery, mitigation, and deferral programs, they can maximize their savings and avoid further losses.
George Zaharatos, Principal, Trade & Customs, KPMG
Dawn Olesky, National Drawback Lead, KPMG
Part III: USMCA: How to Be Ready on July 1
In anticipation of the United States-Mexico-Canada Agreement (USMCA) going into effect July 1, KPMG experts discussed the potential impact the new rules could have on the automotive industry in a Restart Webinar to Detroit Regional Chamber members. KPMG explained how companies should prepare for how sourcing decisions and production could be affected throughout the supply chain.
Companies must determine if their products still qualify under USMCA considering its stricter local content and labor rules. Businesses should also anticipate short and long-term strategies to address possible risks and advantages.
Rule Changes in Automotive
Michigan’s manufacturing footprint is heavily integrated with Canada and Mexico. KPMG reported that $36 million of Michigan exports are currently being transported there. And transportation equipment is the largest export, followed by machinery and chemicals.
What companies need to focus on are product-specific rules, and there have been major changes in certain industries. As for OEMs, the regional value content is increasing from 62.5% to 75%. This will encourage more local production and sourcing. A labor value content will also now be required.
OEMs must also ask themselves if they offer a qualifying wage-rate to their employees. In the United States, this is $16 per hour excluding benefits, bonuses, incentive pay, and all other similar payments.
Roadmap to Transition
KPMG outlined the following steps to help companies prepare for July 1:
- Perform impact analysis of rules of origin changes, evaluation of NAFTA qualified goods under USMCA
- Migrate systems from NAFTA to USMCA, upload new rules of origin, perform testing, requalification of goods, NAFTA data conversion, etc.
- Send instructions to suppliers for USMCA documents, Modify NAFTA certificate forms to reflect USMCA requirements
- Collect supplier declarations on USMCA, perform system updates with USMCA supplier data
- Determine eligibility under new USMCA rules
Andrew Doornaert, Managing Director, Trade & Customs, KPMG
Rada Gaynullina, Director, Trade & Customs, KPMG